Procuring goods and services is the backbone of every business, and obtaining these essentials from reliable sources is key to smooth operations. Timely payments to vendors are essential for nurturing strong, mutually beneficial relationships. For accounts payable teams, managing and executing the company’s short-term payment obligations to suppliers is a crucial responsibility. A well-organized accounts payable workflow enhances transparency and accuracy in transactions between buyers and suppliers, playing a pivotal role in the procure-to-pay process.
Dive into the details to understand the accounts payable cycle and discover effective ways to streamline the process, tailored for AP teams.
What is Accounts Payable Workflow?
The accounts payable workflow is the series of steps a company follows to manage and pay its short-term debts to suppliers. It covers everything from receiving and checking invoices to getting approvals, making payments, and keeping accurate records.
Automation tools help make this process faster and more accurate by reducing mistakes and improving transparency between buyers and suppliers. Overall, the AP workflow helps keep financial tasks organized and efficient, improving how the company handles payments and purchases.
Why is the Accounts Payable Workflow Management Important?
Problems like delays, bottlenecks, and mistakes in the accounts payable process can lead to overdue payments, duplicate payments, extra costs, and wasted time. These issues impact a company’s finances, supply chain efficiency, and supplier relationships.
To solve these problems, many companies are using automation and digital tools for their accounts payable tasks. This makes it easier to manage more invoices, take advantage of early payment discounts, improve finance department efficiency, and lower the risk of fraud.
Steps of Accounts Payable Workflow
The accounts payable workflow is the process companies use to handle invoices, from receiving them to making payments and reporting. While the exact steps can differ based on a company’s systems and procedures, here is a basic overview of the process.
1. Invoice Receipt
For paper-based systems, invoices are physically received by the accounts payable department. In a digital environment, invoices are received through email, electronic data interchange (EDI), or other electronic means.
2. Invoice Capture and Data Entry
In traditional workflows, the AP team manually enters invoice data into the accounting system. In automated workflows, optical character recognition (OCR) technology is often employed to capture and extract data from invoices, reducing the need for manual data entry.
3. Invoice Verification
Invoices are verified for accuracy, completeness, and adherence to company policies and procedures. Any discrepancies or errors are identified and addressed during this stage.
4. Approval Workflow
Invoices are sent through an approval process to ensure that they meet budgetary and policy requirements. Approvers are notified electronically, and the workflow may include multiple levels of approval based on the invoice amount or other criteria.
5. Exception Handling
If an invoice requires additional information or if there are discrepancies, it may be routed to exception handling. AP team or designated individuals resolve any issues, such as missing approvals or incorrect invoice details.
6. General Ledger Coding
Invoices are coded to specific general ledger accounts, cost centers, or departments to ensure accurate accounting and financial reporting. This step is crucial for maintaining transparency and tracking expenses by category.
7. Payment Authorization
Once invoices are approved and coded, they are ready for payment. Depending on the payment terms and company policies, invoices may be scheduled for payment on specific dates.
8. Payment Processing
Payments can be processed through various methods, including checks, electronic funds transfer (EFT), or virtual credit cards. Automation is often used to streamline the payment process and reduce manual intervention.
9. Record Keeping
All relevant information, including invoices, approvals, and payment details, is recorded and stored for auditing purposes. Document management systems or digital archives may be used to organize and retrieve this information.
10. Reconciliation
Periodic reconciliation of accounts payable records with general ledger accounts ensures accuracy and identifies any discrepancies that need to be addressed.
11. Reporting and Analysis
AP teams generate reports to analyze AP performance, track spending, and identify opportunities for process improvement. Use specific metrics to evaluate the efficiency and effectiveness of the accounts payable workflow.
Other Functions of Accounts Payable to Consider in Workflow Planning
When talking about “accounts payable processes,” it’s important to remember that handling incoming invoices is just one part of the job. Accounts payable staff have a lot more to do, including:
- Managing vendor relationships
- Setting up and managing vendor accounts
- Negotiating quotes
- Creating, checking, and tracking purchase orders (PO)
- Keeping track of short-term debts
- Scanning and storing related documents
- Monitoring and controlling cash flow
Accounts payable managers need to consider all these tasks when planning their team’s work.
Challenges Faced by AP Teams Due to Traditional Processes
Before delving into the advantages of accounts payable workflow automation, it’s important to understand the challenges associated with traditional, manual AP processes. Let’s take a look:
Data Entry Errors
Manual data entry is susceptible to human errors, such as typos, misinterpretation of information, and incorrect data input. These errors can lead to discrepancies in financial records and strained vendor relationships. You might receive duplicate invoices before making a payment, leading to errors and cash flow problems that need fixing.
Inefficiency and Delays
Traditional AP processes are time-consuming, involving the physical movement of paper documents and manual approval workflows. This can result in delays in invoice processing and payment, negatively impacting relationships with suppliers and causing missed early payment discounts.
Lack of Visibility
Without a centralized system, it becomes challenging to track the status of invoices, approvals, and payments. This lack of visibility can lead to misunderstandings, duplicate payments, and difficulties reconciling accounts.
Problems with Scaling
Some organizations receive a steady number of invoices each month. Others see significant fluctuations, making it hard to process when the number of invoices spikes. Some companies are growing and need to handle an increasing volume of invoices. If your processes don’t scale well, you could face serious difficulties.
Risk of Overpayment
The possibility of overpayments arises when organizations lack effective controls and clear insight into their accounts payable processes. Without proper checks and balances, the risk of unintentionally making excessive payments increases, highlighting the importance of implementing robust systems to prevent such financial errors.
Transformative Power of Accounts Payable Workflow Automation
Accounts payable (AP) workflow automation uses technology to make the AP process more efficient and accurate. Here are the main benefits of adopting AP automation:
- Preventing Fraud: Automation helps prevent financial fraud by reducing the risk of incorrect data entry and fake invoices. Features like 3-way matching, audit trails, and automatic approvals help protect against fraud.
- Avoiding Overpayments: Automated systems check for duplicate invoices and errors, helping to avoid overpayments and keep cash flow steady.
- Streamlining Audits: Automation stores audit data in one place, making audits faster and easier compared to manual processes that involve lots of paperwork.
- Ensuring Timely Payments: By centralizing the process, automation reduces human errors and ensures that invoices are matched, verified, and paid on time.
- Increasing Profitability: On-time payments through automation can strengthen vendor relationships and possibly lead to discounts, which helps increase profits.
- Providing a Single Source of Truth: Automation keeps all invoice information in one place, making it easy for AP teams to access and track payment statuses.
- Optimizing Invoice Approvals: Automated approval processes route invoices to the right people digitally, cutting down on paperwork and the risk of lost approvals.
- Eliminating Data Entry: Using OCR technology, automation extracts data from invoices, reducing the need for manual data entry, cutting errors, and speeding up payments.
Manual Vs Automated AP Workflow
In a manual accounts payable workflow, handling invoices involves a lot of repetitive, time-consuming tasks. This includes sorting invoices, entering data by hand, getting approvals through physical signatures or emails, and checking for mistakes. These steps are slow, can lead to errors, and missed discounts, and may harm supplier relationships. Managing these tasks also requires more staff, increasing costs and reducing efficiency.
On the other hand, an automated accounts payable workflow uses technology to simplify these tasks. Automated systems can capture invoice data electronically, cutting down on manual entry and errors. They can quickly route invoices to the right approvers and integrate them with financial systems for real-time visibility into invoices and cash flow. This speeds up processing, lowers costs, and frees up staff to focus on more important tasks.
Automation also improves compliance and makes audits easier by keeping detailed and accessible records of all transactions and approvals. This helps in meeting regulations and spotting potential issues.
How to Choose the Right Accounts Payable Workflow Automation Solution?
Choosing the right accounts payable workflow automation solution is a crucial decision that can significantly impact AP teams’ efficiency. Here are key considerations to help you select the most suitable AP automation solution:
Assess Your Business Needs: Identify the specific pain points and challenges in your current AP processes. Understand the unique requirements of your business, such as the volume of invoices, types of transactions, and integration needs with existing systems.
Define Clear Objectives: Establish clear objectives for implementing AP automation. Whether you aim to reduce processing time, minimize errors, enhance visibility, or achieve other specific goals, having a well-defined purpose will guide your selection process.
Compatibility and Integration: Ensure that the AP automation solution seamlessly integrates with your existing accounting and ERP solution. Compatibility is essential for a smooth workflow and accurate data synchronization.
Scalability: Choose a solution that offers customization options to adapt to your organization’s unique requirements. Ensure that the chosen AP automation solution can handle increasing transaction volumes, additional users, and growing business needs.
Automation Features: Evaluate the automation features offered by the solution. Look for capabilities such as OCR for data extraction, automated invoice approvals, vendor portals, and customizable workflows. These features can significantly streamline your AP processes.
A Way Forward
Automating the accounts payable workflow enhances efficiency, reduces errors, and speeds up processing times. By leveraging technology for tasks like invoice matching, approval routing, and payment processing, businesses can achieve greater accuracy, lower costs, and improved financial control, ultimately driving overall operational excellence.
Selecting the correct workflow automation software is crucial for a successful implementation. Peakflo’s Accounts Payable solution efficiently automates essential workflows for AP teams. This solution ensures a smooth transition with minimal disruptions to your current operations, delivering immediate positive effects on your financial outcomes.
FAQ
The process can be either automated or manual. Manual processes require more staff to handle payments, as tasks like approvals, data entry, and checking invoices for errors are time-consuming. The automation platform primarily manages the payment process for companies using AP software, making invoice approvals and payment execution much easier.
The full cycle of the accounts payable process includes receiving the purchase order (PO) from the procurement team, receiving the vendor’s invoice, cross-referencing the PO with the invoice, and finally authorizing the payment to the supplier.
Some best practices for managing the accounts payable process include simplifying the workflow using technology. Establishing controls and limiting access to financial systems keeps sensitive data secure but accessible to those who need it. Reducing verification steps and signature approval responsibilities can significantly shorten the procure-to-payment time.
